Future of the Indonesian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017

Future of the Indonesian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017

This report is the result of SDI's extensive market and company research covering the Indonesian defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.

 

Introduction and Landscape

Why was the report written?

Future of the Indonesian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Indonesian defense industry.

 

What is the current market landscape and what is changing?

After a decade of economic reform in the economy, the Indonesian defense ministry has decided to modernize its armed forces in 2011. Therefore, the defense spending during the forecast period will grow rapidly at a strong CAGR of 22.4% to reach US$18.2 billion by 2017.  During the review period, the government decided to reduce its military spending, and consequently the allocation for both capital and revenue expenditure has decreased.  The primary reasons for the strong growth anticipated in the Indonesian defense expenditure is the country's effort to overhaul its defense equipment, strong economic growth at 16.1% CAGR during the review period, border disputes with Malaysia and the various programs for the disaster relief, and peace-keeping operations.  

 

What are the key drivers behind recent market changes?

Indonesia's defense expenditure is driven by a number of factors that are unique to the country. Firstly, the country maintains it has no intention to develop an army to threaten peace in the Southeast Asian region, and despite the country's recognition of the need to significantly increase its defense budget to meet minimum requirements over the forecast period, there appears to be no indication of an arms accumulation strategy. Factors such as its efforts to build a domestic defense industry, tensions with Malaysia, natural disasters, an accumulation of demand due to historically low defense expenditure and a highly complex border region will drive overall defense expenditure in the forecast period.

 

What makes this report unique and essential to read?

Future of the Indonesian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

 

Key Features and Benefits

• The report provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
• The report includes trend analysis of imports and exports, together with their implications and impact on the Indonesian defense industry.
• The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
• The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.
• The report helps the reader to understand the competitive landscape of the defense industry in Poland. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.

 

Key Market Issues

• Indonesia's 2012 defense budget accounted for 0.82% of GDP, making it one of the lowest percentages of GDP invested in defense in Southeast Asia. The small defense budget provides a significant challenge in reaching two major targets: the improvement of all military units' operational preparedness, and soldiers' social welfare. Based on the 20011-2015 strategic state defense development programs, the Indonesian Ministry of Defence estimated the defense budget requirement for 2013 would be US$16 billion; however the actual defense allocation only reached US$8 billion. The majority of this figure will be spent on the payment of soldiers and staff wages. According to the Ministry of Defence, the 2013 defense budget is only 51% of what is required.
• Although the defense budget for 2012 has significantly increased in comparison to the previous year, deficiencies in defense management practices continue to obstruct efforts to optimize scarce defense resources. For example, inconsistencies in defense procurement and planning have created problems for several weapons suppliers, as defense legislation remains uncoordinated and unclear. The scope of the defense legislation process, from national security to defense industrial development, also highlights the lack of inter-agency effectiveness regarding security and defense-related institutions. Without the opportunity to streamline the policy process, issues such as these are expected to continue over the forecast period.

 

Key Highlights

• The Indonesian defense market, estimated to value US$8.1 billion in 2013, is expected to grow at a CAGR of 22.4% during the forecast period to value US$18.2 billion in 2017. The primary stimulator of defense expenditure is the government military modernization program, which was undertaken to compensate for the severe military underfunding during the review period. It is currently estimated that the defense budget is capable of satisfying only 52% of the country's required military defense expenditure.
• Although the Indonesian defense budget does not allow for heavy arms imports, the amount of imports has been increasing during the review period. Throughout the 1990s, the country's most significant arms supplier was the US, however, during the review period, this supply decreased considerably and countries such as the Netherlands, Russia, and South Korea have become important suppliers for Indonesian defense. Furthermore, South Korea emerged as the single largest arms supplier country to Indonesia in 2011. The country primarily imports technologically advanced systems such as ships and aircrafts, and relies upon domestic procurement for arms such as guns and armored vehicles. 
• The Indonesian government's efforts to increase investment in the defense sector focus upon the simplification of investment provisions. Business fields are classified as ‘open', ‘closed', and ‘open with conditions'. Businesses involved in the manufacture and supply of raw material for explosives and related industries are allowed foreign capital ownership under a special license agreement. However, the production of weapons, ammunition, explosive devices and combat equipment are only permitted through local capital investment, and Indonesia has capped foreign investment in the defense sector at 49%. A recently adopted revised government procurement policy guarantees a transparent procurement process, which reduces issues regarding unfair treatment, evaluation criteria and award of contract.